How can Russia be insured against a corrupt drug market?

11.03.2011 — Analysis

The Sverdlovsk region is facing a shortage of medicines that can be obtained at discounted prices. In fact, the government found itself unable to implement its stated social policy. But the problem wasn't even a budgetary shortfall; it was just that the drugs were being pilfered. Even buying drugs through competitive tenders hasn't stopped this. As this correspondent for "RusBusinessNews" has determined, government officials have mastered the art of manipulating tenders to serve their own interests. Experts are convinced that instead of providing beneficiaries with free medications, we need to move to a system of prescription drug insurance. But neither the public nor the state is ready for that.

The Sverdlovsk region has failed to provide certain categories of citizens with medically-necessary drugs, although the Russian government currently earmarks large sums of money under a federal program to do just that. The region was allocated 1.3 billion rubles from the federal budget in 2011, and 134,000 residents of the Sverdlovsk region should have been eligible for this program, but for some reason many were left out. As of March, several hundred people had been unable to fill needed prescriptions at pharmacies. Interesting facts emerged after an investigation.

Private companies provide free medications to eligible beneficiaries. These companies are selected through requests for tender published by the Ministry of Health, but there has not been a single competitive tender in the Sverdlovsk region in 2011. The next bidding was to be on March 4, but it was canceled by the regional Office of the Federal Antitrust Agency (FAA), for the usual reason - officials from the Ministry of Health were unfairly fettering the competition. Their strategy is ingenious - for example, the object of the bidding is the right to provide food along with potent drugs and narcotics. But obviously, not just any company can work with narcotics. According to Arkady Beliavsky, the minister of health, only two organizations in the Sverdlovsk region possess the necessary license, so the winning tender has to come from one of them. By including food products (for which no license is needed) in the contracts to provide potent drugs, government officials managed to exclude a large number of potential suppliers. One can only guess at how the owners of these "narcotic" licenses expressed their gratitude to the bureaucrats who devised this rule.

Businessmen cite even more interesting facts. The requests for tender published by the Ministry of Health list completely different rates of payment for providing drugs to the public. And these rates are constantly increasing. According to Dmitry Tikhonov, the director of the Medfarmservis company, in 2010 the rates of payment ranged from 72 to 98 rubles per service, but the canceled requests for tender were offering between 523 and 812 rubles to provide medication to a single beneficiary! It is not at all clear how these rates are set for the bidding. Because of this, businessmen have asked the Office of the Federal Antitrust Agency to request that the Sverdlovsk Regional Energy Commission verify how the prices are determined, but the Antitrust Agency suggested that the businessmen take on this task themselves.

There's no use appealing to the REC in any case. As Olga Piniagina, a specialist at the Regional Energy Commission, told "RusBusinessNews", drug manufacturers who provide additional drug benefits under the program answer to the Federal Tariff Service (FTS). The REC is only responsible for the markups of the wholesale suppliers, which are limited by a federal law on state purchases. But unfortunately for lower-income Russians, the FTS made it clear to the regional commissions in 2009 that they were not permitted to regulate markups on state purchases of services to provide medications to eligible beneficiaries.

The government's position has freed the suppliers' hands. Dmitry Tikhonov claims that it is not so difficult to manipulate the costs. For example, they can be artificially inflated by deducting the expenses of logistics or returned goods, or one can "play" with the names of the drugs, some of which are several times more expensive than others. The businessman claims that only very weak control is exercised over drug purchases. Many medicines bought as part of the government drug program are unneeded and the municipalities agree to accept them only because they are "free." However, for other drugs there is a waiting list.

An unusual situation occurred in early 2011 - there were fewer beneficiaries in the Sverdlovsk region, but 25% more "free" prescriptions were handed out, compared with the same period in 2010. This state of affairs is more than unpleasant for Minister Arkady Beliavsky, since government officials are quietly pushing to lower the costs of providing drugs. According to businessmen, this team has asked that doctors not grant disability status, that they reduce benefits, replace imported medicines with domestically-produced equivalents, and so on. This is done to reduce the burden on the budget, but in reality, the Sverdlovsk region has been spending even more per beneficiary.

Right now officials are unable to explain this phenomenon, but they certainly do not believe that this reflects any sharp increase in the number of complications in chronically-ill patients. Perhaps it is the doctors who are being unscrupulous. Drug suppliers claim that some of the program's medications are ending up not in the hands of the intended beneficiaries, but on the free market.

The Russian government is trying to fight corruption by changing the law on state purchases. But experts don't think it will help. The existing programs to provide medicine to eligible citizens need to be replaced by so-called prescription drug insurance. But the country is not yet in agreement on how that should work.

Maksim Starodubtsev, the president of the Territoria association of regional medical insurers, suggests that patients should pay for a percentage of their medical care. For example, the government promises to provide the public with free treatment at inpatient facilities, including a standard assortment of drugs (let's say domestically-produced ones), but if a patient wants higher-quality medications, the difference in cost must be paid for by either the patient or the patient's insurance.

But even he doubts that an insurance system is taking root in Russia - the market here is poorly developed, the judicial branch is not doing its job, people tend to cheat the system, and so on. Thus, insurance companies are not doing what they were assigned to do. Instead of verifying that prescriptions are medically justified and monitoring the quality of medical care, Russian insurers frequently collude with hospitals - the government is picking up the tab, so why pinch pennies?

"And finally, we shouldn't forget that Russians aren't used to paying for healthcare. They think, I'm entitled to it, so let the government pay for it. That's why prescription drug insurance isn't taking root here at this stage of development of the insurance companies, society, and the state. But we have to try", - predicts Maksim Starodubtsev.

Vladimir Terletsky